Argentina Bond Market Risks Overheating as Provinces Boost Sales

  • Northern province of Chaco is one of the poorest in Argentina
  • Provinces have sold $3.65 billion of bonds abroad this year

One of Argentina’s poorest provinces is joining the boom in international bond sales, fueling concern that investors are overlooking potential risks in a bid to boost returns.

Chaco, a cotton-producing province located in northern Argentina, plans to sell $250 million of five-year notes by the end of July. That would make it the country’s seventh local government to raise financing abroad this year, part of a surge in debt sales as President Mauricio Macri restores investor confidence in the South American nation.

Unlike wealthier provinces such as Buenos Aires and Cordoba, Chaco not only relies on federal government tax transfers for 80 percent of its revenue but its per-capita gross domestic product is also half the national average. Moody’s Investors Service rates it seven levels below investment grade and one step below Argentina’s ranking. The province of Salta, which is rated higher than Chaco, has paid the highest cost to borrow debt among Argentina’s local governments, issuing $300 million of notes to yield 9.1 percent in June.

“If we look back on it a year from now, this may be the bell ringer that says that was the top for provincial debt,” Walter Stoeppelwerth, the chief investment officer at Buenos Aires-based brokerage Balanz Capital, said of the Chaco bond sale.

Chaco Economy Minister Cristian Ocampo said the province plans to use proceeds from its bond sale to invest in infrastructure including roads, port and sewage projects, which will allow the local economy to grow.

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